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Stocks stutter with earnings mixed as inflation worries remain

US stocks indices remain in the green on the week but the familiar concerns around rising price pressures continue to haunt market bulls. Investors have been paying particular to corporate guidance on the effects of higher costs, rising rates and pricing levels. The strength in the US dollar is also becoming more relevant and having a negative impact on certain companies’ earnings.

The Fed has been aggressively tightening monetary policy this year and the widely followed 10-year US Treasury yield broke higher yesterday to levels last seen in July 2008 above 4.10%. The speed and scale of the hiking path have raised fears that economies will be pushed into recession. Another three-quarter-point rate hike is priced in for the next FOMC meeting early next month. In fact, the chances of a similar 75bp move in December are now priced at 75%.

Earnings vary between sectors

Shares in Netflix jumped 13% after it published positive results after Tuesday’s opening bell. The streaming giant stemmed its subscriber losses in the third quarter. It is also seeing strong demand for its advertising capacity which could be good for shareholders with the new ad-based subscription about to launch soon. This came after the company stunned investors in April by revealing subscriber growth had gone into reverse.

On the flip side, Tesla shares fell nearly 3% after hours as the EV giant reported weaker than expected sales. Production and delivery bottlenecks impacted earnings along with dollar strength. Higher costs linked to a ramp up in output at new factories being slower than hoped also hurt the stock. The shares are down nearly 45% from their highs amid higher inflation and rates causing a slowdown in the economy.

Other earnings reports of note include one of the biggest consumer staples groups in the world, Ohio-based Proctor & Gamble. They highlighted the effect of inflation as well as the additional hit from the strength of the dollar. Healthcare group Abbott Laboratories dropped 6.5% on the rampant greenback which weighed on its international sales.

Many seasoned investors believe the risk-reward for risk markets remains unfavourable in the near term due to numerous headwinds such as rising rates, sticky and elevated inflation and falling growth estimates. But others point out the positive seasonal characteristics of stocks if they can steady. A late year rally is being touted, especially with the amount of bearishness around and the propensity for a short squeeze.  

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